Working Paper

Political Economy

Daniel Montolio, Francesc Trillas

2011/15: Regulatory federalism and industrial policy in broadband telecommunications

We analyse the impact of regulation, industrial policy and jurisdictional allocation on broadband deployment using a theoretical model and an empirical estimation. Although central powers may be more focused and internalize interjurisdictional externalities, decentralized powers may internalize local horizontal policy spillovers and use a diversity of objectives as a commitment device in the presence of sunk investments. The latter may, for instance, alleviate the collective action problem of the joint use of rights of way and other physical infrastructures. In the empirical exercise, using data for OECD and EU countries for the period 1999-2006, we examine whether centralization promotes new telecommunications markets, in particular the broadband access market. The existing literature, in the main, claims it does, but we find no support for this claim in our data. Our results show that indicators of national industrial policy are a weakly positive determinant of broadband deployment and that different measures of centralization are either irrelevant or have a negative impact on broadband penetration.